The hotel industry in Los Angeles has bounced back post-pandemic, but with a looming service workers strike and a slowing economy, are the boom times for travel coming to an end, or ramping up ahead of the 2026 World Cup and 2028 Summer Olympics?

The hospitality industry has experienced a recent financial uptick with “revenge travel,” the consumer trend of spending big on trips following Covid shutdowns. Hotel revenue, which dipped to $37 billion in 2020, shot to $99 billion in 2022, up from $87 billion in 2019, according to Statista Market Insights.

But that post-pandemic wanderlust may be starting to wane. According to a June report in The New York Times, hotel rates that were skyrocketing during the past two years are increasing at a slower pace than before year over year. In addition, according the U.S. Travel Association, hotel demand nationwide receded in May for the second consecutive month, down 2% from 2019.

Issues abound

Hotel owners in Los Angeles are facing many challenges as they try to navigate a period of high labor costs and rising interest rates. 

“It’s almost impossible to get money from any lender,” said Amar Shokeen, owner and chief executive at Welcome Group Inc. The El Segundo-based hotel operator maintains a portfolio of 11 properties across the U.S., including the El Segundo-based Hyatt Place Los Angeles/LAX and the AC Hotel by Marriott South Bay.

“The cost of interest is very high and the labor has gone up,” said Shokeen. “People are leaving L.A., so we’re starting to seek solutions like HB1 visas and hiring immigration attorneys to try to staff from other countries to offset this shortage of labor and increased minimum wages.”

And an upcoming strike threat has hotel owners concerned that labor costs will spike quickly. The Los Angeles and Orange County chapter of the National Hotel and Food Service Workers Union voted in June for a strike authorization, with contracts expiring on June 30. Upwards of 15,000 workers at more than 60 hotels in the area could be impacted if the two sides fail to reach an agreement.

The unionized workers, including housekeepers, cooks, dishwashers, front desk agents, servers and food service laborers are asking for a $5 an hour raise with additional raises totaling $11 over three years. They are also demanding affordable health care and reasonable shift hours.

“If you’ve got a luxury hotel in Beverly Hills and you’re charging $800 a night, it could somewhat easily absorb an extra $5 per hour on labor cost, but it’s going to really impact those smaller hotels and the budget to mid-size properties,” said Alan Reay, president at Newport Beach-based Atlas Hospitality Group.

Reay noted that most hotels in L.A. County are operating above where they were in 2019 in terms of room revenue. He added that net operating incomes are not as strong as they were back in 2019 in terms of the percentage of room growths. That’s in part due to increased costs across the board of everything from insurance to materials and labor.

“The labor cost is the single biggest expense that any hotel has,” Reay said.

Updates difficult

The other ominous cloud for the industry is the impact of rising interest rates on construction and renovations. 

“I think we’re seeing a similar situation where the banks are pulling back from the office building market,” said Reay. “A lot of the banks are concerned about the future in terms of the hotel market.”

Alex Kuby, an associate principal at Long Beach-based architecture firm RDC, specializes in interior environments for hospitality. He said he hasn’t seen a slowdown in investment as much as banks gravitating toward traditional developers, pushing upstarts off the scene.

“A lot of first-time developers left the L.A. game in favor of more experienced established developers,” Kuby said. “I think that that is the reaction to the lending environment, which is more focused on working with teams that were proven with great track records or working with established brands.” 

Kuby said RDC entered this year with more than 120 projects and about 20,000 guest rooms in the pipeline for the city, many being built in anticipation of the 2026 FIFA World Cup and the 2028 Summer Olympics.

Shokeen sees an urgent need for the city to step in to ensure that there are enough hotel rooms to accommodate these events.

“If the city does not facilitate opening up new hotels, the only solution during World Cup and Olympics would be Airbnb,” he said. “They need to allow hotel developers to come in there and build.”

Shokeen said that L.A. officials need to prioritize getting developers access to land, easy permits and favorable tax rates.

“They’re spending $20 billion at the airport, but they have not thought about the infrastructure of hotels,” said Shokeen.

What does all this mean for consumers who are looking for good rates on a room? According to industry experts, it doesn’t look like travelers will see a huge break in prices anytime soon.

Due in large part to the slowdown in lending, the number of U.S. hotel rooms increased just 3% in April 2023 from the same period in 2019, according to STR, a hotel analytics firm. About 153,000 hotel rooms were under construction in April, a drop from 220,000 in the same month in 2020.

Not only could the scarcity of rooms keep prices high, but consumers may also have to pay more in the form of fees like resort fees, parking fees, pet-stay fees and other charges as hotels nickel-and-dime consumers to recoup pandemic losses. While the Biden administration has targeted some of these practices as “surprise fees,” Reay believes that they won’t go away and will be disclosed as options instead.